Talking Points
AUD Data goes gangbusters
JPY Capex hits 5 year high
UK Construction PMU shows no slowdown in housing
EZ PPI supports rate hikes
US off on Labor Day
Last week during the darkest moments for yen bulls when seemingly every piece of Japanese economic data was disappointing to the downside we noted that while present day fundamentals provide little reason for establishing yen longs, probability cautions us against taking on new yen shorts so late into the move. Tonight such prudence provedwise as the yen staged a strong rally against the greenback with USD/JPY dropping nearly 100 points from Fridays close. There were multiple reasons for the yen comeback starting with a blazing hot CAPEX number which showed that Japanese capital spending increased 18.4% - the fastest pace in 5 years. The news quickly spurred speculation that BOJ may have to tighten its monetary policy after all before year end in order to contain this double digit investment growth in the Japanese corporate sector. The yen was further helped along tonight by the strength in the yuan as USD/CNY slipped to a record low of 7.9385 in overnight trade as traders positioned themselves ahead of the Asia-Pacific Economic Cooperation forum taking place later in the week. Finally profit taking in the EUR/JPY cross which reached record highs breaking the key 150 level last week also helped to push USD/JPY lower. With latest IMM data indicating record short yen positions, the currency market appears to be caught long USD/JPY with too many players jumping on the carry trade bandwagon over the past few weeks. With many of these positions now vulnerable to liquidation from stops the chances for further yen gains remain good.
In the Euro-zone PPI data continued to show pricing pressures escalating on the wholesale level with year over year gains rising to 5.9% from 5.8%. The news only confirmed ECB hawkish stance expressed by Mr. Trichet last Thursday and barring some major unexpected event will likely lead to further rate hikes by the Central Bank next month.
With US markets closed for Labor Day, trading should become progressively quieter as we move to the North American open with currencies likely continuing the direction set by Asia.
